Answer:
She should pay $22,113 for this investment
Explanation:
A fix payment for a specified period of time and compounding on specified rate is called annuity. $5,000 per year payment for seven years is also an annuity and its today value can be determined by following formula
Present value of Annuity = P [ 1 - ( ( 1 + r )^-n ) / r ]
P = Payments = $5,000
r = required rate of return = 13%
n = Number of years = 7
Present value of Annuity = $5,000 x [ 1 - ( ( 1 + 13% )^-7 ) / 13% ]
Present value of Annuity = $5,000 x [ 1 - ( ( 1 + 0.13 )^-7 ) / 0.13 ]
Present value of Annuity = $5,000 x [ 1 - ( ( 1.13 )^-7 ) / 0.13 ]
Present value of Annuity = $5,000 x 4.42261
Present value of Annuity = $22,113
